Just to clarify, did you do a format external memory with the MicroSD-card? I believe some issues are caused by the MicroSD cards being formatted in Fat12 or some other older file system which works in some things and not others. You see this problem in digital cameras too, so the best thing is to let the player format the external card. Alternatively, mount the card in MSC mode and format it using Windows. This has fixed most issues of this nature.

I still am having this problem, I tried transfering from rhapsody also and it transfers but when I look in the external folder nothing or when I boot up the player nothing is in there and only 10mb is used(probably from formating)

I noticed a setting in the player called initialize but it does not let me select yes, is this the problem?

As I said at the top, have you erased external memory and then formatted it in MSC mode ? Connect the powered down device with the hold button on to the computer and then right clicking the external drive and format.

I just purchased a 1GB Kingston card off of Amazon.com for $11.09 including shipping through a seller named Blue Proton. I tried pasting a link but it isn't working. If you go to the main page and do a search for "Kingston 1 GB Micro SD Card (Retail Package)" it will give you the correct item. Then click on the link for Used and New.

I think Meritline is about as cheap as it gets.
I bought a 1GB A-Data card from Newegg last month for $24, which was an incredible deal at the time. And now you can get one for $10... I can't believe how cheap they got in such a short period.